U.S. Supreme Court Asked to Review Escobar Circuit Splits Related to Materiality and Scienter in False Claims Act (FCA) Cases
On November 20, 2018, Defendants-Petitioners in Brookdale Senior Living Communities, Inc. v. U.S. ex rel. Prather (Brookdale), filed a petition for writ of certiorari with the U.S. Supreme Court (the High Court) asking the High Court to resolve circuit splits regarding the implied false certification theory in FCA cases. Specifically, the petition asks the High Court to decide whether the “failure to plead facts relating to past government practices in an FCA action can weigh against a finding of materiality” and “[w]hether an FCA allegation fails when the pleadings make no reference to the defendant’s knowledge that the alleged violation was material to the government’s payment decision.” A copy of the petition can be found here.
The Brookdale petition stems from the 2016 U.S. Supreme Court decision in Universal Health Services Inc. v U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016) (Escobar), in which the Supreme Court addressed the implied false certification theory in FCA cases. According to Escobar, implied false certification occurs when a person or entity submits a claim for payment to the government and thereby impliedly certifies compliance liability under this theory requires the person or entity know that the legal requirement that was not followed, and which it failed to disclose, is material to the government’s decision to pay.
The relator in Brookdale, a former nurse of the defendant, alleges that, in violation of Medicare regulations, the entity did not obtain physician signatures on home health certifications as soon as possible after the physician established a plan of care and submitted those services for payment. The relator originally filed the case in July 2012 in the U.S. District Court for the Middle District of Tennessee, which dismissed the lawsuit for failure to plead falsity. However, the case was revived on appeal by a divided panel of the Sixth Circuit, which held that the relator had adequately pled a regulatory violation. After the relator amended her complaint in light of the Supreme Court’s 2016 decision in Escobar, the district court again dismissed the case for failure to plead materiality. On appeal, the Sixth Circuit again reversed in a 2-1 decision issued on June 11, 2018, finding that the relator had adequately pled materiality and scienter.
According to the Brookdale petition, the Sixth Circuit’s revival conflicts with Escobar in two important ways. First, the court’s decision improperly excuses the relator from showing that the government refused payment when aware of similar violations in the past, which is a significant part of the materiality requirement. And second, the court incorrectly construed the company’s alleged knowledge of regulatory noncompliance with knowledge that the noncompliance could actually be material, which speaks to the scienter requirement. The petition asks the High Court to step in “to provide government contractors with certainty regarding their potential FCA liability for submitting claims for payment that do not involve any affirmative misrepresentation.” As it stands now, the Sixth Circuit is on the side of a five-two split regarding its stance on what it takes to show materiality in implied false certification theory cases, and a further decision by the U.S. Supreme Court in this arena could significantly impact how these cases proceed in the future.
Reporter, Amy L. O’Neill, Sacramento, +1 916 321 4812, firstname.lastname@example.org.
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Washington Insight: What Will Election 2018 Mean for Healthcare, Medical Device and Pharma Companies – On November 6, 2018, Americans turned out in the largest numbers in our nation’s history for a nonpresidential election. Control of the House of Representatives flipped to the Democrats, while the Republicans widened their margin slightly in the Senate. Join us as we discuss the impact of the elections on the healthcare service, medical device and pharmaceutical industries, including:
- How will the priorities of the next Congress impact the health industry?
- Will healthcare and the ACA be on the agenda?
- What are the prospects for regulatory simplification?
- How should the health industry prepare for the next two years?
- How will congressional oversight and investigations impact the healthcare industry?
- Finally, what will the results of the 2018 midterm elections mean for the 2020 presidential election?
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